The Two Tales of the Market Recovery

May 29, 2020

The past few months have brought with them surprising market lows and highs amid the COVID-19 pandemic.

Markets fell over 35% in about 30 days throughout February and March1, marking one of the fastest plunges into a bear market on record.2 Maybe even more surprising is the speed at which the market has recovered. The S&P 500 Index is up 38% in a little over two months from the March 23 bottom.1 That means in the course of a three-month period, we saw the biggest market decline since 2008/2009 and subsequently the strongest two months since 2009.

It’s encouraging to see markets stabilizing and moving away from the severe levels of volatility and forced selling that dominated March. The CBOE Volatility Index (VIX) approached an all-time high in March3, roiling markets and causing selling: some panicked, some forced. When we look at that, combined with all the other negative factors the U.S. economy has endured recently — businesses shutting down, consumers hoarding goods, rising death tolls, etc. — it is truly remarkable that we have come this far, this quickly.

However, as investors, we should expect negative economic news and volatility to continue. There will be big costs to the U.S. economic shutdown, not all of which are apparent at this time. The startling number of job losses4 and decrease in gross domestic product (GDP)5 are just a couple of metrics we have seen thus far. More accurate data on the true cost of the pandemic will be revealed in the coming months.

The quick and immense magnitude of Fed actions stabilized the fixed income markets and has provided support for stock markets.6 However, bankruptcies are occurring and the bonds of weaker companies have not experienced the degree of recovery that municipal and higher-quality corporate bonds have.7

We see this same dichotomy in the equity markets. There are a few sectors that have done relatively well and recovered nicely. These include traditional defensive sectors8 that historically hold up better during times of economic weakness – such as healthcare, utilities and consumer staples – in addition to technology names.9

There are several other sectors in the equity market that have not recovered to the same extent, including industrials, financials, consumer cyclicals and basic materials. These industries employ millions of people and if they continue to struggle, we will likely see weaker jobs numbers and slower economic growth moving forward.

A sign of true healing and market confidence will come when money starts to flow back into these weaker, at-risk areas – something we will be monitoring for closely.

While we remain optimistic about the long-term outlook for markets and our ability to adapt and overcome this challenge, there is still a fair amount of uncertainty below the surface that we should be mindful of. We have regained some of the balance we lost during the initial pandemic-inspired panic, but we should be prepared to see continued volatility over the next few quarters of 2020 and beyond. Please contact your Exencial advisor with any questions.


1. Yahoo! Finance (data as of 5/29/20) – S&P 500
2. Forbes (3/12/20) – The bear market is here! Fastest plunge of 20% on record
3. Yahoo! Finance (data as of 5/29/20) – CBOE Volatility Index
4. USA Today (5/8/20) – Unemployment soars to 14.7%, job losses reach 20.5 million in April as coronavirus pandemic spreads
5. CNBC.com (4/29/20) – US GDP shrank 4.8% in the first quarter amid biggest contraction since the financial crisis
6. Federal Reserve Board (3/23/20) – Federal Reserve announces extensive new measures to support the economy
7. MarketWatch (5/12/20) – Fed kicks off its buying of corporate debt ETFs
8. Investopedia (3/28/20) – Defensive stock
9. MarketWatch (4/27/20) – Tech stocks have weathered the coronavirus panic, but some analysts wonder if this resilience can last

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 9.9 trillion indexed or benchmarked to the index, with indexed assets comprising approximately USD 3.4 trillion of this total. The index includes 500 leading companies and covers approximately 80% of available market capitalization.

Created by the Chicago Board Options Exchange (CBOE), the Volatility Index, or VIX, is a real-time market index that represents the market’s expectation of 30-day forward-looking volatility. Derived from the price inputs of the S&P 500 index options, it provides a measure of market risk and investors’ sentiments.


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